Beware of the Sydney Property Shifts

.
If there were a term that I would love to see introduced into the Australian property vernacular it would be just the one word – “shifts”. For some time now I have found it most frustrating the way commentators and (to a much lesser extent) politicians raise topics, such as housing affordability is a fine example, Headlines such as “Australia’s housing affordability improved in the first three months of 2016” mean very little and serve little purpose. The problem with the housing affordability debate is that it focuses on Sydney and Melbourne which are the two most sort after locations whilst there is no mention of the affordable areas.

Rather we should for example look at what’s actually driving our specific market demographics on a suburb by suburb basis. Only then can we actually get a proper idea of what is actually happening where, believe me, we are now seeing some healthy shifts and some alarming shifts.

For example, in many Sydney suburbs we are now seeing record low stock levels particularly with houses – so what caused these shifts? In the vast majority of cases it always comes back to government policies whether federal, state or local. The reason why we are seeing less houses on the markets is because property values have grown to such a level that the barrier is now stamp duty. For a house purchased at $3,000,000 it is $150,490 and a house purchased at $4,000,000 it is $220,490 so home owners are now going to Plan B – refinancing and renovating.

When I speak to property valuers in our area I’m told that their workloads are now split 50/50 between purchases and re – financing which is a shift that started 3 years ago. Three years ago in Mosman there would be around 125 houses on the market each week where today there is around 50, so homeowners are refinancing to renovate with a view to a longer hold.

In November 2013, the value of housing finance was 26 per cent higher than the previous year. This shift has continued ever since which clearly identifies where homeowners are shifting their monies taking household debts to historic highs with historic low interest rates.

Mosman has 5,890 houses approximately with 55 on the market today. Cremorne has 7,135 houses approximately with 7 on the market today. Neutral Bay has 1,109 houses approximately with 8 on the market today. Cammeray has 1,275 houses approximately with 9 on the market today. Northbridge has 1,914 houses approximately with 10 on the market today and Seaforth has 2,317 houses approximately with 18 on the market today. This has been the pattern for the last three years and don’t expect this to change any time soon.

Now when we look at the shifts in the new apartment markets this is where it gets scary because the blame here is shared equally between the state and federal governments. When the state government starts introducing a strategy for massive high – density developments and the federal government changes the ratio restrictions from 50 per cent to 100 per cent for overseas buyers on off – the – plan purchases, as I said a few years ago – train wreck.

Recently we read that the major banks ceased foreign lending so I immediately thought something is happening here as banks never turn away new revenue streams. Now we read that Westpac and the ANZ have found approximately $1 billion in Chinese mortgage application fraud. No doubt a precursor to the Australian Taxation Office clampdown on non – resident purchases so the anxious buyers then shifted to federal government endorsed off – the – plan purchases. It’s anyone’s guess where this will end up, although you would be right in saying this is only going to get worse. More particularly this has the potential so see a major revaluation of existing apartment purchases significantly down. Little wonder the major lenders announced recently that they were not approving any more loans in many Sydney suburbs.

Now shift your attention to the upcoming federal election where the Liberal party is not going to touch negative gearing and the Labor party are going to only make negative gearing available to new properties. Can you see another potential shift in the markets if negative gearing only applies to the new developments where given what’s currently happening nobody will be buying anything until these markets sort themselves out?

Then I read an article yesterday where Harry Triguboff announced that recently sales to Chinese buyers had halved and that Chinese buyers over the past few years had accounted for 80 per cent of new Sydney apartment sales. Yes – 80 per cent! Why is this not an election issue?

Now to put this into further perspective household consumption is actually what’s presently driving the Australian economy. In the December quarter 2015 national accounts household consumption delivered 0.4 per cent of the total 0.6 per cent growth.

Now there are a few shifts that need much closer examination. First signs for the NSW government will be a dramatic collapse in stamp duty revenues which is happening big time. The once ever dependable existing house market is renovating or has renovated so no financial joy there either. Then there will be a dependence on the off – the – plan purchases actually completing, although that’s looking shaky too. With 93 per cent of investors preferring to buy existing properties and now the ALP wants them to but new properties – well that won’t work. We now know that nearly all the off – the – plan sales have gone to Asian investors.

The ALP need to be corrected on this as this policy change to negative gearing is Mining Tax Mark II.